ABSTRACT: Cumulative abnormal returns are calculated over an event window of three days to take lead and lag effects into account. The method-ology is applied to a small sample of cases, including both merger and market inquiries, referred to the CC in recent years. In two cases, the investigations were ongoing at the time of writing. Various events were examined including the bid announcement date (for merger inquiries), the date of the reference to the CC, and date of publication of the issues statement, emerging thinking document (for market inquiries), provisional findings and final report. In some cases OFT announcements in the run-up to the reference were also examined.

Event study analysis is a branch of econometrics which attempts to measure the effects of economic events on the value of firms by examining stock market data. Providing that share prices reflect the underlying economic values of assets, changes in equity values will properly capture expected changes in the economic profitability of the firm. This requires us to accept the hypothesis that stock markets are efficient and that prices reflect all publicly available information relevant to the prospects of the firm. Thus the effect of an event will be reflected almost immediately in asset prices. This immediate reaction makes any link easier to establish than if we were examining say, profitability, which might require months or years of observation before the effects of the event were fully felt.

2. This paper considers the effect on stock prices of announcements relevant to Competition Commission (CC) references, using established event study method-ology. The methodology is discussed in the first two sections of the paper. We have chosen to adopt a market model of abnormal returns, calculated using daily total return data from Datastream.